State House approves payday lending bill

Bill heads to the state Senate for further action.

HARRISBURG — Legislation that would allow the controversial practice of payday-lending to return to Pennsylvania is on its way to the state Senate.

The House voted 102-90 on Wednesday to approve the measure sponsored by Rep. Chris Ross, R-Chester, over objections from Democrats who said the practice traps people in a cycle of debt.

Backers say they're pursuing the bill because they're concerned that the loans are already being made illegally and they want them to occur in a regulated environment.

"This is going on right now in Pennsylvania in online advertisements [and] TV advertisements [with] Montel Williams," Ross said. "Would someone actually pay Montel Williams for months if there wasn't business here in Pennsylvania?"

Industry advocates say the loans are in demand, and point to the fact that Pennsylvanians are going online and crossing state borders as evidence for demand for their services.

The measure would give lenders a carve-out from the state's 24 percent annual percentage rate cap and allow payday lenders to charge a 12.5 percent financing fee and a $5 fee on payday loans. It would also require lenders to get an annually renewable license from the state. The licenses would cost $3,000 for the business' primary location and $1,000 for every other location.

Under Ross's bill, payday lenders would be barred from making loans of more than $1,000, or 25 percent of a person's gross monthly income. It would bar people from rolling over existing loan balances into new loans. Borrowers would instead have to be offered an extended repayment plan at no extra charge.

But opponents, mostly advocates for the poor, say the small-dollar loans are made at punitively high annual interest rates and keep families on the hook with obligations they cannot hope to pay back. Under the bill, a two-week loan for $300 would cost $42.50, but that comes out to 369 percent interest at an annual rate, critics said.

"It is a debt trap, designed for people who are already struggling," said Rep. W. Curtis Thomas, D-Philadelphia.

Kerry Smith, an attorney for Community Legal Services in Philadelphia, called payday loans "destructive products."

"They're not a financial lifeline — it's like throwing a drowning man a lead anchor."

Rep. Jennifer Mann, D-Lehigh, said she's concerned about the practice, but wasn't sure how the state could keep people from finding ways to borrow money if it meant the difference between keeping their car or making the rent payment.

"My hope is that no one is in a desperate enough position to get a payday loan," she said. "I recognize that it's a tough economy, but you can't control an individual's finances."